Clean-tech companies hold out hope

SAN FRANCISCO (MarketWatch) -- Joseph Ianni was about to go begging for $2 million in capital at the Cleantech conference here, so he was understandably a bit nervous.

It wasn't so much that Ianni was fretting over whether his company, Canada-based ReDriven Power Inc., or the wind turbines that it makes, would resonate with investors. It was more a question of whether the time is right to find cash backers.

Ianni says his company, which sells smaller-scale, individual wind turbines for businesses or homes, has caught on enough with the buying public to interest a network of 180 dealers and double his revenue for both 2009 and 2010. ReDriven also has been able to run the business based on its revenue, Ianni said.

But now Ianni wants to expand his business. He didn't think it was a good climate last year to seek funding, and he's wondering whether the smoke has cleared enough to land new investors.

"One has to be persistent, that's for sure," he said. "You have to persevere to find what you're looking for."

Ianni's firm is but one of many gathering in San Francisco this week as they seek to push the envelope in developing greener technology -- and they're hope to gain financiers to join their cause. They're finding, however, a cool reception for a number of reasons.

Taking a back seat

While the Obama administration has been supportive of companies' efforts in developing green technologies, the initiative has been overshadowed in Washington in recent months as attention is focused on health care, jobs and the economy.

It's the economy that has put the biggest roadblocks in front of any clean technology initiatives, public or private. While the number of venture capital deals have continued to rise throughout the decade, the amount of money invested was down to $5.7 billion in 2009 vs. the $8.5 billion recorded in 2008, according to Sheeraz Haji, president of the Cleantech Group, the sponsors of the conference.

Further, the capital raised from initial public offerings for these companies is still less than half of a peak reached in the fourth quarter of 2007

Haji says that 80% of that is attributable to the economy, while the rest may be skittishness on the part of investors toward a new, developing technology. Bigger companies that might have considered acquiring a clean-tech firm a few years ago may hold off, but the clean-tech entities generally are holding their own, he says.

"I don't see bankruptcies," Haji said. "I see a lot more distressed sales."

Some investors aren't so sure that it's just cyclical. Anup Jacob, a partner in the Virgin Green Fund, says that while the number of clean-tech investors grew exponentially from 2003 to 2009, the fervor is beginning to subside.

"I think we'll see segmentation, and less participants in the marketplace," Jacob said.

Signs of hope

There are, however, some hopeful signs.

Kevin Genieser, managing director at Morgan Stanley, says the mindset of investors and companies has shifted to include clean technology on their radar screens.

"Green has really become a board-level issue," Genieser said. "There is a lot of strategic interest out there. I think the challenge is the size and the space."

While IPO funding has yet to climb back to its 2007 heights, it ticked up slightly during 2009 when compared with 2008, going to $4.75 billion from $4.65 billion. Plus, last year's fourth quarter saw a five-year peak in clean-tech IPOs at 20.

There also remains interest in clean tech from a variety of sources, from small venture-capital firms to large corporations such as Coca-Cola Co.
KO, +2.49%
Boeing Co.
BA, +0.71%
and Duke Energy Corp.
DUK, +1.46%
Cleantech Group says at least 110 major corporations invest in clean technology, and Google Inc.
GOOG, +1.66%
is a leading player.

"It's way more than a Web page now," Nicholas Parker, co-founder of Cleantech, said of Google. "It's a major partner in a clean economy."

More M&A activity

Parker says that while most clean-tech companies struggle, and only 14% make it to the IPO stage, roughly one-third of them end up getting acquired by a larger company. Clean technology accounted for more than 5% of all global merger activity in 2009, up from 2% in 2006, he said.

"Last year was a record deal year," he said.

There is a caveat, though, Parker added. All the top 10 deals took place outside North America. Many of those companies ran into trouble in 2008 because follow-up funding didn't come through. As a result, there were bargains to be had.

Edward Getty, head of external technology acquisition for Coca-Cola, told an audience that the company is a massive consumer of water and needs to make sure its supply keeps flowing. It has more than 900 bottlers and 20 million outlets where people can purchase its products, but the company wants to double its business.

Coca-Cola, however, doesn't own its own supply chain, so it's constantly looking for partners to provide sources of clean water.

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